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In evaluating investment opportunities, I consider a company's management, products, customer relationships, competitive positioning, financials, the macroeconomic climate, social media response and other sources. I arrive at my own conclusions, tuning out the noise of the marketplace. My... More
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  • Salesforce Earnings Calls: Phenomenal Growth In The BS Index

    The Benioff Superlatives Index, or BS Index, tracks CEO Marc Benioff's use of superlatives in Salesforce earnings calls. Building on an earlier post about the BS Index, this post adds two more quarters, includes more superlatives, provides a visualization, and identifies a "phenomenal" trend. The data now spans the 15 quarters from Q1-2011 to Q3-2014. The updated list of superlatives is (in order of frequency): great, large, exciting, incredible, big, amazing, huge, tremendous, phenomenal, best, awesome, spectacular, fantastic, massive, monster, unprecedented, enormous, giant, outrageous and epic. See the Methodology section below for more details.

    Results

    The BS Index trend remains positive, hitting an all-time high in the Q2-2014 call:

    (click to enlarge)BS Index

    Here's the stock price over the same period:

    (click to enlarge)Stock price

    Indeed there is a moderate correlation of 0.48 between the BS Index and the stock price on the day of the earnings call.

    But not everything is so rosy. The downtrend in GAAP EPS continues:

    (click to enlarge)

    There is a mild negative correlation of -0.10 between the BS Index and GAAP EPS. In other words, higher BS levels are weakly associated with lower GAAP EPS.

    Here is a table of superlatives used at least 10 times over the last 15 quarters:

    SuperlativeTotal uses in last 15 quarters
    great211
    large149
    exciting113
    incredible105
    big104
    amazing70
    huge66
    tremendous60
    phenomenal58
    best37
    awesome33
    spectacular24
    fantastic13
    massive11

    We can also visualize Benioff's superlatives over this period as a word cloud:

    (click to enlarge)Word cloud

    A "phenomenal" trend

    It has been noted elsewhere that Benioff used the word "phenomenal" many times in a recent call. The growth in the last three calls can only be described as phenomenal:

    (click to enlarge)

    A phenomenal trend

    BS Index outlook

    I see three options for Mr. Benioff to sustain the growth of the index:

    1. Use the above superlatives even more frequently. He might revive superlatives he has used less frequently: monster, unprecedented, enormous, giant, outrageous and epic. For example, "I am enormously thrilled to announce that we have closed a monster transaction with Safeway, one of the most outrageous grocery retailers in North America which is a giant continent."
    2. Discover additional superlatives. A quick glance at the thesaurus yields these: mammoth, colossal, astronomical and cosmic.
    3. Create a new part of speech that is superlative to a superlative: a hyperlative, if you will. To do this, Mr. Benioff will need to invent new words. This could lead to exponential growth in the BS Index. Here are some ideas that the team could start with: monstermendous, giga-tacular and awe-normous.

    Methodology

    1. Mr. Benioff's prepared remarks and comments during Q&A were compiled from the last fifteen earnings call transcripts (Q1 2011 through Q3 2014 ending 10/31/13). Transcripts were downloaded from SeekingAlpha.com and, in one or two quarters for which SA did not have the transcript, Morningstar.

    2. Basic Unix tools were used to count the occurrences of the following words used by Mr. Benioff: amazing, awesome, best, big, enormous, epic, exciting, fantastic, giant, great, huge, incredible, large, massive, monster, outrageous, phenomenal, spectacular, tremendous and unprecedented.

    3. The total number of words spoken by Mr. Benioff in each call were counted.

    4. The index for each call was calculated as follows: number of superlatives in call divided by number of words in call times 1,000 for ease of reading and comparison (equivalent to percentage times 10).

    The word cloud was created using the website Wordle.com.

    Disclosure: I am short CRM.

    Tags: CRM
    Nov 24 3:21 PM | Link | 20 Comments
  • Marc Benioff's Incredible Story

    Note to readers: The BS Index has been updated and reported in this post:

    seekingalpha.com/instablog/818827-brookl...-climb

    Commenters have pointed out that on quarterly conference calls, Salesforce (NYSE:CRM) CEO Marc Benioff often uses words like "incredible" and "exciting". To explore this phenomenon I have developed a novel index called the "Benioff Superlatives Index" or simply "BS Index."

    Methodology

    Here is how the BS Index was constructed:

    1. All of Mr. Benioff's prepared remarks and comments during Q&A were compiled from the last thirteen earnings call transcripts (Q1 2011 through Q1 2014 ending 4/30/13). Transcripts were downloaded from SeekingAlpha.com.

    2. Basic Unix tools were used to count the occurrences of the following words used by Mr. Benioff, which I'll collectively refer to as the "Superlatives": Awesome, Amazing, Best, Big, Exciting, Fantastic, Great, Huge, Incredible, Large and Tremendous.

    3. The total number of words spoken by Mr. Benioff in each call were counted.

    4. The index for each call was calculated as follows: number of superlatives in call divided by number of words in call times 1,000 for ease of reading and comparison (equivalent to percentage times 10).

    Results

    Voilà: here is our Benioff Superlatives Index:

    Earnings call

    # Superlatives used by CEO

    BS
    Index
    2011-Q17510.6
    2011-Q26010.9
    2011-Q35911.4
    2011-Q46111.1
    2012-Q1396.5
    2012-Q27611.9
    2012-Q36811.1
    2012-Q49114.0
    2013-Q17011.7
    2013-Q2368
    2013-Q36211.9
    2013-Q48115.1
    2014-Q17111.5

    A plot of the BS Index reveals an uptrend:

    As followers of this stock will know, the stock price has also been rising during this period:

    (click to enlarge)

    CRM stock price

    Meanwhile, GAAP EPS is showing a downtrend:

    GAAP EPS

    Let's put it all together: the more inflated Mr. Benioff's language is, the higher the stock price goes -- and the lower the GAAP earnings go. Amazing!

    Focus on "exciting" and "incredible"

    I examined Mr. Benioff's use of the words "exciting" and "incredible" over the last 13 conference calls. This metric fluctuates, but it is helpful to look at the 4-quarter trailing average (note: this is a trailing average of occurrences per call, not the BS Index):

    (click to enlarge)

    You can see that the trend is less "exciting" than in the past -- perhaps because those pesky GAAP earnings are stuck below zero -- but increasingly "incredible."

    How incredible can it get?

    Disclosure: I am short CRM.

    Jun 04 9:38 PM | Link | 13 Comments
  • Salesforce: In Search Of The Bottom Line

    Plenty of pixels have been spilled about Salesforce's valuation. Let's turn our attention to Salesforce's emerging product offerings and consider how they might contribute to the company's financials. The core sales automation app, now packaged as the Sales Cloud, is the revenue engine for the company. The last 10-K included this nugget under Risk Factors:

    We derive substantially all of our revenue from subscriptions to our CRM enterprise cloud computing application service, and we expect this will continue for the foreseeable future. The markets for our Marketing Cloud and Salesforce Platform remain relatively new and it is uncertain whether our efforts will ever result in significant revenue for us."

    While the company apparently does not break out its financials by product line, I have dug up other guidance on what we can expect from Marketing Cloud and Platform.

    Marketing Cloud is a relatively new area for Salesforce. As Mr. Benioff said on the recent conference call, "we've acquired our way into marketing." (Buddy Media was acquired for nearly $700 million and Radian6 for about $340 million) Benioff indicates on the call that Marketing Cloud revenue is breaking past nine figures so let's assume Marketing Cloud revenue of $125 million in FY2014. The midpoint of guidance for total FY2014 revenue is $3.86 billion. Therefore, I estimate Marketing Cloud revenue at 3.24% of total FY2014 revenue. This business cannot make a meaningful impact on Salesforce's financials without a substantial increase in revenue -- assuming Salesforce can also make the business profitable (a big assumption since CRM's total GAAP earnings from 2004-2013 come to exactly $0.00 (Morningstar)).

    Next up: Salesforce Platform. Benioff touts the tens of billions of transactions per day but does not provide details on profitability or competition. A recent Forrester survey of developers summarized here shows Salesforce Platform just about tied for third place with Google, trailing Azure and getting trounced by Amazon. Don't miss the second chart: it shows a trend of developers planning to increase use of Amazon Web Services and Azure while the outlook for Force.com and Google is a mixed bag.

    By the way, I was interested to learn that Heroku runs on Amazon EC2 servers, another fact we are unlikely to hear from Mr. Benioff on a conference call (Nick D'Alleva, TechSling). And the Sales cloud runs on Oracle databases, though I have seen speculation (based on job listings) that they'll transition to a different database (Klint Finley, Wired Enterprise).

    The bottom line:

    • I estimate Marketing cloud revenue at between 3 and 4% of FY 2014 revenue. Salesforce needs to achieve extraordinary growth and profitability for this offering to contribute to Salesforce's bottom line (psst: Salesforce has no bottom line: a decade of CRM's GAAP EPS comes to $0.00).
    • According to developers surveyed by Forrester, Force.com is essentially tied for the #3 spot with Google. Salesforce's competitors in Platform -- Amazon, Microsoft and Google -- have a combined market capitalization of $706 billion.

    I have not estimated potential contributions by the Service Cloud business and would welcome readers' views on that.

    Disclosure: I am short CRM.

    May 29 12:22 AM | Link | 4 Comments
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